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The Rise and Fall of Capital: Corporate Malaysia in Historical Perspective

2009; Routledge; Volume: 39; Issue: 3 Linguagem: Inglês

10.1080/00472330902944404

1752-7554

Edmund Terence Gomez,

Asian Industrial and Economic Development

Abstract This article argues that better informed insights into the benefits and repercussions of the form of development of East Asian economies could be obtained when the theoretical perspectives from two different bodies of literature are employed collectively. If the concepts from the discipline of political economy – specifically the body of literature dealing with the developmental state now commonly deployed in analyses of East Asian economies – are used in combination with concepts from the literature on business history based on the work of Alfred Chandler, the reasons for the rise and fall of major enterprises in East Asia can be better understood. A case study of enterprise and economic development in Malaysia is presented to substantiate this argument. Key Words: Malaysiadevelopmental stateAlfred Chandlerneo-liberalismcorporate developmentaffirmative action Notes 1 See Chang (Citation2006) for a review of the reforms required of business groups and in the corporate sector in East Asia following the 1997 crisis. 2 In this study, Chandler examined the decline of capital-intensive British industries between 1880 and 1940. 3 See also Berle and Means (Citation1967), the primary proponents of the concept of ownership and control. 4 See Teece (Citation1993) for a perceptive review of Chandler's Scale and Scope. 5 As questions were raised about the efficacy of large firms, the growing argument in the 1980s was for the need for greater decentralisation of such companies, a point that will be referred to here in an analysis of the more entrepreneurial firms in Malaysia. 6 For a critique of Chandler, see Amatori and Jones (2003). 7 Mahathir appeared more enthusiastic about the family-controlled zaibatsu system than the interlocking stock ownership keiretsu pattern of corporate development, where corporate equity was disbursed very widely. The zaibatsu system would evolve into the keiretsu mode of corporate holding after World War II (see Morck and Nakamura, Citation2003). 8 For example, while the government supported privatisation, there was no support for the creation of independent regulatory institutions (with the retreat of the state); the labour market was not liberalised, with trade unions subjected to suppression under Mahathir, ostensibly to ensure investor-friendly market conditions; nor was there much support for social safety nets for the poor as privatisation in health and education expanded. 9 See Tan (Citation1982) for a discussion on the vast ownership of corporate equity by the OCBC group in the Singaporean and Malaysian economies. 10 Another prominent Indian with enormous interest in the plantation sector during the immediate post-colonial period was Arumugam Pillai, though his firms no longer command a presence in the economy (Tan, Citation1982: 144, 155). 11 Major companies have been taken over because of differences among family members over ownership and management. These cases include, apart from the YHS group, the Teo family's Malayan Credit and the Cycle & Carriage group, controlled by the Chua family. 12 See Appendix A. Among these important business figures, Tan Kah Kee's history remains the only one that is well researched (see Yong, Citation1987). It is still unclear why other large enterprises in the colonial era have fallen away. 13 Sieh (Citation1982: 31) argued that Puthucheary gave far too much weight to the extent of Chinese presence in this sector as he did not take adequate account of the activities of major foreign manufacturing concerns such as Bata, Ford Motors and Unilever. By 1970, Low (1985: 26) noted that Chinese ownership of manufacturing companies amounted to 22.5%, with foreign enterprises accounting for nearly 75% of the remaining equity. 14 Heng's (Citation1988) study traces the formation and early growth of this party incorporated and led by some of Malaya's leading Chinese capitalists. 15 For a discussion on these two different managerial and organisational forms, see Chandler et al. (Citation1997). 16 Cheng had come to earn a reputation as Malaysia's "steel king" by the late 1970s, developed through his firm Amsteel Corp; see Gomez (Citation1999: 93‐101). 17 A subsidiary of UMW was given a 35% stake in EON. Mahathir had been a longstanding associate of then UMW chairman, Chia. Both men had served as directors of a leading public enterprise, Food Industries of Malaysia (FIMA). Mahathir had resigned as director of FIMA in 1981 when he became prime minister (Gomez and Jomo Citation1999: 102). Chia lost control of UMW in the mid-1980s when the company was badly affected by the recession. PNB then secured majority ownership of UMW. 18 Perodua had numerous shareholders: UMW (38%), MBM Resources (20%), Mitsui (7%), Daihatsu Malaysia (5%), Daihatsu Japan (20%), and PNB Equity Resource Corporation (10%). Toyota owns 51.1% of Daihatsu Japan and has an interest in UMW, giving the company a significant interest in the Perodua project (Malaysian Business, 1 February 2001). 19 This highway contract was originally awarded to an UMNO-controlled company. Following numerous exposés about the government's award of this lucrative contract as well as other rents to firms owned by the ruling party, ownership was passed to private individuals associated with government leaders, such as Halim Saad and Tajudin Ramli (see Gomez, Citation1990; Citation1991; Citation1994). 20 At the 1996 Second Fujianese World Chinese Entrepreneurs Convention, Mahathir was quoted as saying, "Malaysian Fujianese's close connections with their fellow-provincials in different corners of the world will help promote the business and investment opportunities in Malaysia" (quoted in Liu, Citation1998). 21 The main government enterprises that own a stake in Telekom Malaysia and Tenaga Nasional include Khazanah Nasional and the Minister of Finance Inc., while the controlling shareholder of Malayan Banking and Sime Darby is the national trust agency, PNB. MISC is majority-owned by Petronas, which also owns Petronas Gas. 22 The holding company structure exists whenever one parent or holding company controls the composition of the board of directors, or controls more than half the voting power, or holds more than half of the issued share capital of another subsidiary company. This definition is extended to include a company that is a subsidiary of a subsidiary. The holding company uses the system of pyramiding, which allows the owner to maintain control over corporations with a relatively small investment. See Sieh-Lee (Citation1982: 45) and Lim (Citation1981: 6) for a more in-depth discussion of the holding company structure. 23 There remains little research on the volume and contribution of family firms to the Malaysian economy, an important issue as research on family firms world-wide indicates that almost 70% fail to survive into the second generation. Of those that do, almost 50% do not make the transition from the second to the third generation. 24 There is, however, some evidence of emerging firms, mainly SMEs, involved in new technologies (see, for example, Jomo et al., Citation1999). 25 The Nissan Motor Co has increased its equity in Thailand's franchise holder to 75%, up from 25%. 26 While industrialised East Asian countries spend between 2% and 3% of their gross national income on research and development, in Malaysia this is just 0.4%. 27 Pan Malaysian Cement Works appears in both lists, but with the sale of its cement business to a foreign enterprise is no longer involved in manufacturing. 28 UMNO still retains ownership and control of a number of companies, though the volume of such corporate equity remains unclear.